News and commentary about road pricing across the globe. Tolls, congestion charging, distance based charging, road user charging. Public policy, economics, technology and more. If Google brought you here, look down the right sidebar for references.

Monday, 25 March 2013

I noted last week that the latest Budget from the UK government seemed to indicate that there will be no reform of Vehicle Excise Duty (a tax on owning a vehicle), now it is confirmed by the Transport Secretary (Minister) Patrick McLoughlin in today's Financial Times (registration needed) that road privatisation is off the agenda (Also reported in the Daily Telegraph).

He has stated a categorical "no" to national road pricing, saying "I’m not looking at ways of taking more money off the motorists. I think the motorist has been hit hard over time".

He also said that road privatisation, whilst not ruled out, simply cannot be implemented before the next General Election in 2015. It looks like a more modest reform is envisaged, to provide a longer term funding cycle for highways that avoids spending on roads being affected by annual budgetary cycles.

The Financial Times report indicated:

the DfT’s options paper would focus more on finding ways to give road investment greater future certainty over capital investment and upgrades.

The "options paper" in expected in the middle of the year, and may include a more independent commercial structure for the Highways Agency, as a precursor to privatisation.

There may be more flexibility to use tolls, with the A14 project, discussed before on this blog, being the most talked about future toll road project.

Comment

It isn't surprising that this has been shelved, as it has been clear that there is some complexity to the issue and how it was being approached. However, it is disappointing that it seems to have to some fairly clear stumbling blocks.

It should be possible to commercialise or be well on the way to commercialising the Highways Agency, which sets it up to be partially or wholly privatised, either as a single entity, regional entities or even competing entities. It should also be possible to ringfence funding for such a body (and to do the same for similar local authority entities), whether it involves formal hypothecation of highway taxes or not.

However, the "elephant in the room" on policy is charging. As much as increasing fuel taxes appears politically too difficult for now, it is more difficult to talk about tolling existing roads.

I've said before that any major reforms are going to have to involve certain key principles. I suggest some of these are:

- Choice: Motorists must be given the option of paying directly for road use or continuing to pay as they do now. Only by having it as an option will there be incentives to get service, pricing and costs right.

- Link between prices and costs: This barely exists now in the rates of VED for heavy vehicles, but needs to be a rational relationship between the long run infrastructure costs of sustaining the network and developing it, and those road users who should bear those costs. This means charge setting being rational, but also money from direct charging going into roads (and I suggest some money from existing motoring taxes going into them as well).

- Commercially driven dimension to prices: Not only should prices be driven by costs, but also commercial incentives to attract motorists to paying directly rather than through fuel and ownership taxes. That's why any new entities need to be given maximum freedom to incentivise direct tolls. That can be moderated by OFT application of competition law, to avoid excessive rent seeking by highways companies, but then if there remains choice, the risks of this can be reduced.

- Decentralisation and competition in retailing of road charging: A national road pricing scheme should never be considered, for the same reason there isn't a national air fare system or national telecommunications fee system. People should be able to go to different retailers of access to highways, and buy packages of services. This means having a structure that will allow this market to develop, as it has in Ireland for toll roads.

- Respect of privacy: Initially, those concerned about privacy would simply stay on the current motoring taxes, but new options should include ways of paying for road use that also respect this. That must be the answer to concerns about people's movements being tracked. However, also having some protocols around use of data on movements and respecting privacy of account data will be critical.

- Quality of service: Most discussions about road pricing involve the "how" and "how much", with little about getting value for money. A commercialised structure should change the culture of highways management to be service oriented, and be committed to delivering high standards of service for paying customers. Indeed, you do not need tolls to introduce this, although they will help.

Finally, there needs to be some conscious thought about what motoring taxes are form, rather than the implicit "they are just general tax revenue" presumption that Treasury has taken.

Ownership taxes, after all, impose modest barriers to car ownership, but are a third best way of adjusting for the point that fuel tax poorly reflects marginal infrastructure costs imposed by HGVs above 8 tonnes or so.

Fuel taxes can be argued as being carbon taxes, and taxes on noxious emissions, and taxes to recover infrastructure costs, as well as general revenue taxes. It would help transparency and acceptance of reform if levels for all of these were spelt out.

Road pricing inevitably means motorists buying a service from a provider of such a service, at a price that reflects the fixed and marginal costs of that provision (plus a factor for profit or the opportunity cost of capital depending on governance structures). It is difficult to envisage it going anywhere until the management and relationship of roads with users becomes a little closer to that of other regulated utilities.

Thursday, 21 March 2013

Yesterday, the UK Chancellor of the Exchequer (Minister of Finance/Treasurer), George Osborne, released the 2013 budget. The entire content is here, but I only want to focus on the road pricing/charging elements which are of passing interest.

For some years, UK governments have increased fuel tax every year, increasing it by inflation and an increment of between 1 and 5%.

None of this revenue is hypothecated at all onto road spending; it is treated as general taxation. As an aside £9 billion is the total central government spending in the UK on roads, whereas fuel duty raises £26.6 billion this year (and taxation on owning a vehicle adds another £5.9 billion). This issue is widely known, many motorists being aware that they pay far more to use the roads than government spends on them. It's particularly an issue when there is a significant backlog of deferred maintenance on local authority roads, and a long list of unfunded major capacity relief projects. There is a widespread perception of poor value for money.

Fuel tax in the UK conceptually funds roads, railways (which get about £7 billion in subsidies) and helps pay for welfare, health, education, housing, defence etc. Clearly fuel tax increases were tolerated in the UK (although a massive campaign in 2000 ended the inflation + 5% automatic escalator) during times of prosperity, but not any more.

The Chancellor claims that fuel prices are now 13p/l lower than they would have been otherwise, saving £7 per average tank fill.

What this raises is an obvious question, which I have mentioned before. Are fuel tax rises in the UK now too politically toxic, in the way they are in the United States? There has been a vocal campaign called "Fair Fuel UK" calling for cuts in fuel tax, with the support of some MPs. It argued high fuel tax was "corrosive" to business and affected the competitiveness of UK businesses, based largely on the UK having one of the highest fuel taxes in the world.

Bear in mind that in the US the fuel taxes are a fraction of the level in the UK, and they are typically hypothecated to highway trust funds, so most if not all of the revenue goes on roads. Increases in fuel tax in the US would mean more money for roads (whether it is spent wisely is another debate). Increases in fuel tax in the UK have never been argued as being about spending money on roads, but just as a general tax. However, with tax comprising over half the price of a litre of fuel (when you factor 20% VAT on top of the retail price and the fuel duty), the case for fuel duty being the tax that has gone too far becomes clearer.

This might change when there is an economic recovery, and if wholesale petroleum prices drop. However, if market prices remain high, I suspect it will be too hard for politicians to do for some time yet. It might be easier if part of the revenue was hypothecated towards road spending (a point vehemently opposed by Treasury which does not want fuel tax treated as a road user charge), and increases were linked to that. Yet, if all road spending came from fuel tax revenue, it would only need 20p/l (7p/l if you took the revenue from vehicle excise duty).

However, for the rest of the term of this Parliament the issue will be whether planned increases in 2014 and 2015 (the year of the next general election) proceed, I am betting they wont. The cut in revenue will be swallowed by general efficiencies across the board (the Department of Transport, along with most others, faces a 1% reduction in spending this year). So the debate on the future of fuel tax wont be loud this side of the election, but it is a debate that should happen.

Vehicle excise duty raised - again

Almost no coverage has been given to the inflation based increase in vehicle excise duty, which is a tax on owning a vehicle paid either annually or six-monthly. The rates range from zero for electric and other ultra low emission vehicles to £460 a year (US$699), varying based entirely on CO2 emission ratings. VED applies to all vehicles, but there will be no increase in rates for HGVs, in part because of the introduction of the Lorry Road User Charge, which for UK registered lorries means an offsetting reduction in VED for those liable.

There have been minor changes to exemptions for this tax for disabled drivers, but also an extension of the exemption for old vehicles (those manufactured before 1974). However, my conclusion on this is that it is obviously easier to tax owning a car than it is to tax operating it, although clearly even an inflation based increase to £460 a year would be much less than an inflation based increase in £0.58/l in fuel tax.

It appears the idea has been shelved, and announcements on structural reform of the highway sector to allow more private investment are now expected in June. None of this is a great surprise, as it appears that MPs fear any reform wont be popular with the public.

Lorry road user charge revenue

One line in the Budget mentions expected revenues from the lorry road user charge (a vignette on HGVs 12 tonnes and over), net of the reductions in VED for UK lorries subject to the charge. This essentially represents the new revenue from foreign lorries and is £25m a year (US$38m), and is not estimated to increase in the next three years (indicating that there is not much confidence in the figure and a belief that it may suppress growth in foreign lorry traffic). What is significant about this is how insignificant foreign lorry traffic is to the UK, but then this was more about a political promise to put foreign lorries on an even footing with UK ones.

Conclusion
The word "toll" isn't mentioned once in the Budget, and what it all appears to show is a lack of ambition and a very conservative attitude to taxing motorists. Fuel tax looks impossible to increase, yet vehicle excise duty because it is a one off annual payment, seems easier. Given VED costs less than insurance for most vehicles, it isn't a surprise that this is tolerated. I am pleased the VED reform has been scrapped, because it doesn't really meet specific criteria for a good pricing instrument. It wouldn't reflect usage, it wouldn't reflect expenditure on infrastructure, would have limited effect on demand, would probably be negative for externalities (encouraging diversion onto unsuitable roads) and bears little resemblance to any sort of market based pricing. Finally, it shows that the UK government is almost frightened of mentioning tolls and their use at all for funding new infrastructure, which is a pity. The UK has high poorly targeted motoring taxes, it could have better roads, better quality road spending, less congestion and more efficient outcomes if a package could be put together that could be sold convincingly to motorists that delivered better pricing and spending. However, for now motorists are just pleased to not be paying more fuel tax, and government looks like it will make some governance reforms in managing highways that we will see in coming months, with next to no role for tolls.

Monday, 18 March 2013

- Tolling is the default option as a source of funding for major road projects, as long as it is technically feasible to do so;

- Fuel taxes in Texas have not increased in 20 years, so revenue has been substantially eroded by inflation and engine efficiency (75% of fuel tax revenue is hypothecated into the state Highway Trust Fund);

- A report in 2009 said Texas needs US$4 billion more spending per year to prevent congestion worsening (although I'd argue congestion pricing might make a major dent on that);

- Since 2006, Texas has built 150 miles of toll roads and has 100 miles more planned (this includes HOT lanes);

- Texas legislature authorised seven PPP toll roads in 2011.

The philosophy appears to be that tolls are preferable to raising taxes, including taxing fuel. There is a sStrong belief that user pays is fair.

Mike Perez, the McAllen city manager said “The feeling is if you want to use it, you should pay for it,” ...“That’s what I see in McAllen. There’s a kind of hesitancy toward ‘Let's all go together and pay for it so 20 percent can use it.’”

That's a point to respect, all new road projects benefit a minority of motorists, so why should all pay for it, when those who use it can be charged directly?

The growth in private investment is notable too:

Cintra, a toll operator based in Spain, is the lead company in three large Texas toll projects, including the state’s first privately operated toll road, a segment of State Highway 130 from Austin to Seguin that opened in October. The terms of all three contracts allow Cintra to collect tolls on the roads for roughly 50 years.Nicolas Rubio, the president of Cintra’s American arm, based in Austin, said contracts for such long periods are the only way companies like his can recoup the large upfront investment they make in building the roads and maintaining them.“When you really look at these projects, the bulk of the revenues are back-ended, and you need to be patient until you can be able to get back that money,” Rubio said.

Comment

States across the US are coming to realise that with the difficulty in raising fuel taxes, there will have to be new sources of revenue to pay for roads and new arrangements to finance, build and own them. Texas has grasped the obvious option of simply using tolls more frequently, and to be fair the projects that have progressed have lent themselves to tolling. It has embraced user pays, but I question whether more may be done with tolls to manage peak demand, and what happens when conventional tolls cannot be stretched further. That's when debate must move onto VMT/MBUF/distance based charging, which will raise the hackles of some in terms of privacy. Yet a state that purportedly is led by politicians who embrace private enterprise and user pays should embrace more user pays on roads, and even the commercialisation and private investment in existing roads.

In the meantime, good on Texas for embracing tolls, may it continue and inspire other states to see how far they can practically use tolls to pay for new road capacity. The question being how far it is efficient and effective to toll new roads, but not untolled ones.

Thursday, 14 March 2013

Supply Chain Review reports that the cross-sector lobby group, Transport Reform Network (TRN), is calling for roads to be managed more like the electricity and water sectors, as a utility. It was commenting in the context of a lack of funds to address problematic railway level crossings. TRN suggests that any reform needs to look comprehensively at ownership and fuel taxes as well as tolls, it is more concerned that talk of road pricing isn't about "bolting on" a solution to existing structures, but is part of a more comprehensive reform of highways across Australia.

This is quite enlightened and actually far beyond how most commentators, lobbyists and governments think of roads.

New Zealand - NZTA enforcing tolls against recidivist violators

The NZ Herald reports that the New Zealand Transport Agency (NZTA) successfully enforced a prosecution against a man who failed to pay NZ$5000 (US$4109) in tolls on the Northern Gateway toll road north of Auckland (the only state highway toll road in the country).

Robert Masaberg was convicted in North Shore District Court of 20 charges of failing to pay a toll and was ordered to pay $1156 in fines, court and prosecution costs.He owes $5181 in unpaid tolls for the Northern Gateway Toll Road, unpaid administration fees and additional costs connected with attempts to get him repay his debt.

It was reported nearly two years ago that no one had been prosecution for non-payment, it is clear this policy has changed. Three other prosecutions are to be pursued for evaders. NZTA says the non-compliance rate for the toll road is 4%, which after four years of operation remains perhaps higher than would be expected.

South Africa - Times reports on allegations of poor practices by SANRAL

The Sunday Times of South Africa reports on a court case that claims the South African National Roads Agency Limited (SANRAL) has implemented the Gauteng toll system unlawfully, and in a way that is "disproportionately and unjustifiably expensive". It undertook a three month investigation that raises questions about procurement practices that seem to favour certain suppliers, including a consultancy (TolPlan) that it claims has a vested interest in the promotion of projects as it works on the feasibility studies, tenders for development and engineering work on the projects. It also claims that Kapsch won the tender for the toll system based on a minimum level of "black empowerment" shareholding of the firm set up for the contract, but has bought out most of that black shareholding (and will receive more revenue as a result). Noting that the Kapsch led firm will receive around 25% of the tolling revenue (which if true, is comparatively high).

The story is that it is a "cozy club" which implies a potential element of either corruption or sloppy mismanagement by SANRAL. SANRAL CEO Nazir Alli admits that it "looks" like Tolplan had a conflict of interest by adjudicating on tenders and then working on the projects themselves, and another manager noted that SANRAL accepts consultancy recommendations "99%" of the time.

Clearly allegations of this kind raise opposition to tolling in the country, if the sense is that those promoting tolls are doing so out of personal financial interest. The more that looks like being the case, the more damage is obviously done to plans to expand tolling the country, and damage both to SANRAL and those companies which engage in such practices with full awareness of what is going on.

UK - MP suggests tolling road to pay for maintenance
Whilst government considers reform of the highway sector, the Bournemouth Echo reports that one MP has floated tolling an existing road, that needs a £26 million (US$39m) major repair which is currently unfunded. The MP is Chris Chope, who represents Christchurch and is from the Conservative Party. The road is the A338 Bournemouth spur road, the main road from the east and north into the city. The idea has been scorned, no less than because it would mean motorists paying to use an existing road, and risks substantial diversions of traffic onto parallel routes or dissuading visitors altogether.

The self-styled "liberal" news-site Keystone Politics comments approvingly about the Pennsylvania Turnpike Commission's plan to convert manual tolls to fully electronic tolling, saying the key advantage (beyond removing people from "dehumanizing" work) would be to allow for higher tolls at peak times, to reduce congestion and encourage public transport usage. The plan is to replace all toll booths over five years, and frankly the sooner the better.

USA - Texas - toll tag options

The Waco Tribune has a useful article on toll tag account options in Texas. It outlines how there are three toll road authorities in the state, each offering toll road accounts that are effective on all toll roads in Texas (TxTag, provided by Texas DoT. TollTag, provided by North Texas Tollway Authority. EZ Tag, provided by Harris County Toll Road Authority. It describes how non-tag toll prices can be between 33-50% more than tag product prices.

Wednesday, 13 March 2013

The New Indian Express reports that the Ministry of Urban Development Secretary, Sudhir Khrishna (who is a professional civil servant, not a politician, for the sake of clarity), has written a letter to Chief Secretaries of State in the country calling on them to consider introducing congestion charging in cities.

The letter urges a range of TDM approaches, including promoting public transport, cycling and walking (the latter two are far too often neglected in cities), but that resolving congestion can be difficult and needs to involve managing excessive use of private vehicles, specifically recommending cities consider what has been done in Singapore and London.

The article suggests that the original Singapore Area Licensing Scheme, which involved vehicles having paper permits pre-purchased and manually inspected for access into city centres, may have particular potential.

Positively, he seems to be promoting congestion charging as a simple economic concept, whereby those who value a scarce resource the most pay to use it.

India has many toll roads, but has a major problem before it can introduce congestion charging

The fundamental problem being the difficulties of enforcing any form of road pricing in India based on tracing violators through number plates.

Without some concerted efforts at federal or state levels to address standardisation of number plates, reliable ownership data and systems for maintaining the accuracy of that data (and facilitating effective debt collection), India can't seriously introduce congestion pricing as is seen elsewhere.

Brazil is taking an ambitious path, by essentially making DSRC tags mandatory on all vehicles by 2014, which is one way of identifying vehicles and linking them to accounts. India might do the same, or could simply choose to reform its vehicle registration and number plate system. All of this requires a lot of effort and cost, but does need to be managed professionally and independently, and backed up by the powers to enforce a standard process on vehicle owners, buyers and sellers.

Failing to do that will mean calls to introducing congestion charging will be just that. For unless an electronic system can easily identify, trace and charge or fine a vehicle by itself, and do so accurately and reliably, you simply cannot introduce a modern congestion pricing system.

The article is perhaps more interesting for its summary of how Australia charges trucks to use its roads. It is not road pricing or tolls, but a reasonable means of trying to be as efficient as possible in using fuel tax and ownership taxes.

Rather than the widely used non-system of political/bureaucratic guesses as to what might be charged, it involves calculating costs attributable to heavy vehicles, costs attributable to all vehicles and then setting charges to recover from heavy vehicles their share of infrastructure costs. 60% are recovered from fuel tax and 40% from vehicle ownership taxes. Fuel tax is collected at the Federal level, but ownership taxes at the state level.

The principles applied are as below:

Full recovery of allocated infrastructure costs while minimising both the over and under recovery from any class of vehicle;

Cost-effectiveness of pricing instruments;

Transparency;

The need to balance administrative simplicity, efficiency and equity (e.g. impact on regional and remote communities/access);

The need to have regard to other pricing applications such as light vehicle charges, tolling and congestion;

Ongoing cost recovery in aggregate;

The removal of cross-subsidies between vehicle classes.

Now without distance and weight based charging, the system is going to be very much second best, but this system for setting charges is more advanced than that used to set charges in much of North America and Europe. It is, at least, based on setting clear objectives with the need for transparent economic analysis to be used to base charges, and it does provide a framework which could be easily adapted to weight/distance based road user charging.

The Copenhagen Post reports that the head of Det Miljøøkonomiske Råd, the environmental economic council, Hans Jørgen Whitta-Jacobsen, has suggested replacing the extortionate vehicle ownership taxes with a distance based road pricing system. Vehicle purchase taxes cost 105% of the purchase value of a car up to 79,000 DKK (US$13,778) and 180% for every Kroner of value above that. This imposes an enormous tax on the purchase of a new car. Ownership taxes start at DKK120 (US$21) for the most fuel efficient diesel cars up to DKK15090 (US$2632) for the least efficient. All of this makes car ownership expensive, and so doesn't target driving on the most congested roads (so penalises rural areas and those who without jobs accessible by public transit, walking or cycling). His biggest concern is that such taxes discourage motorists from buying newer, more fuel efficient low emission vehicles.

The Jakarta Post reports that PT Jasa Marga, Indonesia's largest state owned toll road company, is expecting a 16.1% revenue increase this year, worth a total of US$671 million. It has a network of 545km of toll roads with four new toll roads to open this calendar year (Nusa Dua-Ngurah Rai-Benoa road in Bali, Kebon Jeruk-Ciledug road in Jakarta, Gempol-Pandaan road in East Java and the Ungaran-Bawen road in Central Java).

Jasa Marga is looking to facilitate up to 1.2 billion vehicle trips nationwide in 2013, 9.1 percent higher from the 1.1 billion vehicles last year. 80% of trips are on toll roads in greater Jakarta, indicating the sheer density of usage in that city. Notable in the report is the roll out of the new e-Toll pass, which involves the use of a DSRC on-board unit, and a contactless smart card with prepaid credit that can be topped up. Only 11% of transactions are at present using this technology, the intention is to lift this to 30% within two years. Now the toll booths with this technology are not free flow, the tag activates the barrier arm, but the intention is to expand the number of toll booths that are electronically equipped to 111 by the end of 2013. I would have thought that given the chronic congestion in Indonesia, lifting up take of electronic tolling to 50% of trips within two years should be a realistic goal.

The deal will allow Atlantia, which also operates about 1,800 km of motorways in Brazil and Chile, to branch out into airport concessions in Latin America. It will not, however, generate meaningful cost synergies, a Milan-based analyst said.

The website of radio station KHTS reports that Santa Clarita city (part of the LA metro area) is investigating whether to accelerate the widening of the I-5 freeway (the main northern freeway out of LA) between Highway 14 and Castaic by tolling the additional lanes. The project would cost $310 million and the city has 75% of the funds needed to progress it (when divided over 30 years), and is hoping tolling the additional lanes may provide the remainder. The proposal is to make the project into a PPP, with a private concessionaire recovering the cost over 35 years, using tolls on the new lanes only. The intention is for pricing to be dynamic maintaining a minimum speed of 45mph. Curiously, the proposal maintains the HOT lane concept, by keeping the lanes free for vehicles with three or more occupants, which seems crazy if the key desire is to raise revenue. The only purpose to keep HOT lanes is consistency, but beyond buses there is little good reason for new lanes to be free for any cars. There is sense in applying the HOT principle if the lanes are underutilised HOV lanes, but why should well occupied cars occupying the same road space get access for free? What evidence is there that this actually changes behaviour on any meaningful scale? (besides a car with three people in it can split a toll three-ways surely)?

International Construction reports that Ferrovial subsidiary Cintra has won the concession to build the North Tarrant Express expansion in Texas. Cintra is to be responsible for developing a 6.5 mile extension, with the state responsible for another 3.6 miles, but Cintra responsible for the tolling, operation and maintenance of the lot, with the total cost of both segments being US$1.38 billion. The contract involves building two new managed lanes which will be tolled, but also the maintenance and operation of the untolled lanes.

Give fare hikes are unpopular, is it so much more unpopular to charge vehicles for driving into Manhatten? If so, does this indicate that motoring is just too important to New York City to introduce higher charges, compared to increasing fares (of course some may point out that if the financial issues are around public transport, then raising extra money from the users may be justified).

It points out Bloomberg's failure, but noted that he didn't do much to build a coalition of support at the state level, nor was enough done to sell the idea to New Yorkers (e.g. it ought to be have been possible to get support from Manhatten residents and businesses, cyclists and public transit users).

Kathryn Wylde, CEO of business lobby group, Partnership for New York, says tolling the bridges on East River Bridges just "mobilizes Queens and Brooklyn to go crazy", but that a cordon around Manhatten would be "more tenable".

The article seems to conclude that this should be sold as an idea, perhaps part of a wider environmental agenda.

That may be one approach, but I think it has to be more of a quid-pro-quo that has some reason behind the charging (Schwartz's plan has a rational basis to it), that is able to be seen as equitable (which means a charge somewhere across the north of Manhatten), but pays for improvements to roads (there is an enormous backlog of deferred maintenance across the network) and offsetting reductions in general tax contributions to transport. Of course there is going to be fear that using some form of road pricing will see funding from other sources dry up, that needs to be worked through with the state.

The case for congestion pricing of some kind in New York is compelling, it would improve access by improving trip reliability, improving speeds for freight, buses, taxis and cars, reduce pollution and raise funds that can be used to improve the entire road corridor - and indeed, that is what should be the focus.

Less congestion, better quality infrastructure and with alternatives in the forms of public transit, active modes and shifting travel times (having different charges for peak and offpeak trips is critical).

However, it would appear that politicians don't have the intellectual fortitude to confront kneejerk opposition, and concern that it looks like a new tax which will be wasted. No sound argument can be made for New York State to raise the gas tax to pay for the city alone, although there are sound arguments to use competitive tendering, commercialisation and private contracting to reduce public transit costs. Given the existence today of tolled access to Manhatten on some routes, but not others, the case for equity is strong, but the case for efficiency is stronger still.

Candidates on the left with an environmental bent should be able to argue for this, particularly if it means funding other modes and reducing tolls beyond Manhatten. Candidates on the right with a bent for reducing congestion and improving competitiveness, should be able to argue for this too, if it is about improving existing roads and even reducing other taxes (if there is no interest in a net increase in revenues).

Do they simply fear whoever argues for it first gives an automatic issue to argue against for the others?

Thursday, 7 March 2013

The Financial Times reports that the Budget is unlikely to see any announcement around highways privatisation, for fears of a political backlash. The intention instead is to publish a "green paper" in summer outlining options, which effectively means no substantial reform will be completed before the general election in two years' time.

Whilst privatising the strategic road network in England (motorways and major A roads) is not necessarily difficult, the problem is in guaranteeing a stream of revenue for any private investors. Options under consideration have ranged from allowing tolls to be introduced (which the Government is prepared to accept for new roads and "new capacity" (e.g. additional lanes), to reforming Vehicle Excise Duty (the tax on owning vehicles) by splitting part of it away into an optional motorway vignette, which would then be dedicated to paying for that network.

The Prime Minister has made it clear that no option should leave anyone worse off, effectively constraining tolls to new capacity only (and given the issues of diversion, this is unlikely to mean tolls are going to be feasible except for comparatively few projects).

Understandably, some Ministers and MPs are baulking at the Vehicle Excise Duty reform option. The appeal to officials is that is attempts to replicate what has existed in some European countries for many years, when vignettes were introduced to pay for their motorway networks. However, by offering the option of not paying, it is likely to cause some motorists to divert short trips on motorways onto local roads, creating localised congestion issues.

Motorists are likely to be fairly open to reforms of the Highways Agency that may commercialise it or even privatise it, but when it is about paying to use the roads, it becomes different.

The reason to introduce a vignette was seen as a way of transparently introducing a user charge for motorway use, so that money for that network could be readily identified without the need for hypothecation of a tax that is also being used for other purposes. Of course later it could be reformed into a more usage based charge over time.

Yet it neglects the local road network, and doesn't create a cohesive structure to reform the highway sector as a whole. Ignoring local roads, where much congestion is and where maintenance issues (and capabilities in asset management) are the most serious, is simply absurd.

I've written before about what I think of this option and what I believe should happen - which is to commercialise the Highways Agency and incentivise local authorities to do the same (including creating multi-council joint ventures), set up a regulator to "buy highway services" on behalf of motorists, funded by hypothecating Vehicle Excise Duty and part of Fuel Duty, and then allow the commercialised entities to attract private equity, and progressively be privatised (and to set up tolls that allow motorists to choose to contract out of paying existing taxes).

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What is road pricing?

Road pricing is any system that directly charges motorists for the use of a road or network of roads. Traditionally it has meant tolls on single routes, particularly crossings such as bridges or tunnels. More recently it also includes area, cordon and zone pricing of urban areas, and distance and time based charging of whole networks. It does not include fuel or tyre taxes, or taxes on ownership or purchase of road vehicles.